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Capital Markets Law Journal Advance Access originally published online on June 7, 2008
Capital Markets Law Journal 2008 3(3):326-342; doi:10.1093/cmlj/kmn012
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© The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Explaining securities markets efficiency

Razeen Sappideen*
* Razeen Sappideen is based at the Law School, University of Western Sydney, Australia.

The first 150 words of the full text of this article appear below.


Key points

  • This article examines the claim of securities markets efficiency based on the efficient markets hypothesis (EMH), which Fama proclaimed to be a well substantiated truth in 1978.
  • Behavioural theory (more particularly prospect theory) shows that individuals do not act to maximize their utility as asserted by neoclassical economists, while entrepreneurial theory explains share price movements to be the product of error prone guesswork by market participants.
  • Alongside this, the emergence of the shareholder value concept in the late 1980s advocated by both corporate managers and outsider market makers has undermined the very foundations of share price efficiency.
  • More importantly, the undermining seems to have been caused by forces exogenous to the firm. Nonetheless, securities markets are highly competitive. This article investigates this inherent paradox.

 

The efficient market hypothesis (EMH) rests on three assumptions: (i) economically rational behaviour by market participants (utility maximization behaviour),1 (ii) homogeneous expectations of participants . . . [Full Text of this Article]


   1. On securities markets efficiency
 

   2. Insights from behavioural theory
 
Prospect theory

   3. Explaining share price movements
 
The neoclassical view
Theory of entrepreneurship
Shareholder market value

   4. Concluding thoughts
 

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Capital Markets Law Journal 2008 3: 245-246. [Extract] [Full Text]